Law of agency

1. LAW OF AGENCY LAW OF AGENCY

2. Meaning & Definition of AgencyMeaning & Definition of Agency
Section 182, Section 182,
“ “ An agent is a person employed to do any An agent is a person employed to do any
act for another or to represent another in act for another or to represent another in
dealing with third persons. The person for dealing with third persons. The person for
whom such act is done or who is so whom such act is done or who is so
represented, is called the principal”represented, is called the principal”

3. The person who delegates the authority is The person who delegates the authority is
known as principal.known as principal.
To whom the power is delegated is known To whom the power is delegated is known
as agent.as agent.
The relationship that is created is known The relationship that is created is known
as agency.as agency.
A person who act in place of another – A person who act in place of another –
AgentAgent
The person on whose behalf he acts - The person on whose behalf he acts -
PrincipalPrincipal

4. Features of the contract of agencyFeatures of the contract of agency
Principal is answerable to third parties for Principal is answerable to third parties for
the acts of agent .the acts of agent .
Consideration not necessary – Section 185 Consideration not necessary – Section 185
of the act clearly lays down , “ No of the act clearly lays down , “ No
consideration is necessary to create an consideration is necessary to create an
agency”agency”
Principal must be competent to employ an Principal must be competent to employ an
agent – Only a person who is competent agent – Only a person who is competent
to contract can employ an agent. ( Major, to contract can employ an agent. ( Major,
Sound Mind )Sound Mind )

5. Agent may not have contractual capacity –Agent may not have contractual capacity –
A minor or a person of unsound mind may A minor or a person of unsound mind may
act as an agent & bind the principal to the act as an agent & bind the principal to the
third persons. third persons.

6. Test Of Agency Test Of Agency
A person does not become an agent on A person does not become an agent on
behalf of another merely because he gives behalf of another merely because he gives
him advice in matters of business. him advice in matters of business.
Every person who acts for another cannot Every person who acts for another cannot
be agent. Cobbler mending shoes of a be agent. Cobbler mending shoes of a
man ,servant rendering services for us – man ,servant rendering services for us –
are not agents. are not agents.

7. To test whether a person is or not To test whether a person is or not
an agent…an agent…
The essential condition is that whether he The essential condition is that whether he
is clothed with a necessary authority by is clothed with a necessary authority by
another ( principal ) to bind him & make another ( principal ) to bind him & make
him ( principal ) answerable to the third him ( principal ) answerable to the third
persons & thus establishing a privity persons & thus establishing a privity
contract between that third person & the contract between that third person & the
principal. principal.
If this condition is satisfied then a person If this condition is satisfied then a person
is considered as an agent.is considered as an agent.

8. Classification of agents Classification of agents
Special AgentsSpecial Agents – who is employed to do – who is employed to do
some particular act or represent his some particular act or represent his
principal in some particular transaction. As principal in some particular transaction. As
soon as the act is performed the authority soon as the act is performed the authority
of agent comes to an end. E.g. An agent of agent comes to an end. E.g. An agent
engaged to sell a house. engaged to sell a house.
General AgentGeneral Agent – who is employed to do all – who is employed to do all
such acts which are connected with the such acts which are connected with the
business of trade of his employer. If business of trade of his employer. If
principal limits authority secretly, he principal limits authority secretly, he
himself will be boundhimself will be bound

9. Universal AgentUniversal Agent – is one who is employed – is one who is employed
to all such act which a principal can to all such act which a principal can
lawfully do & can delegate. Agent has lawfully do & can delegate. Agent has
unlimited authority. unlimited authority.
FROM THE POINT OF VIEW OF NATURE FROM THE POINT OF VIEW OF NATURE
OF WORK TO BE PERFORMED:OF WORK TO BE PERFORMED:
1. 1. FactorsFactors – is a mercantile agent to whom – is a mercantile agent to whom
the possession of goods are given for the the possession of goods are given for the
purpose of selling them. He usually sells purpose of selling them. He usually sells
the goods in own name. He can exercise a the goods in own name. He can exercise a
general right of lien on the goods general right of lien on the goods
delivered to him for balance of payment if delivered to him for balance of payment if
any. any.

10. 2. 2. AuctioneerAuctioneer – is an agent who is appointed – is an agent who is appointed
by the principal to sell the goods on his by the principal to sell the goods on his
behalf at a public auction for a reward in behalf at a public auction for a reward in
form of commission. Eg reserve priceform of commission. Eg reserve price
3. 3. BrokerBroker – is an agent appointed by the – is an agent appointed by the
principal for the purpose os selling or principal for the purpose os selling or
buying goods on his behalf. He do not buying goods on his behalf. He do not
have possession of goods nor he can have possession of goods nor he can
contract in his own name. He bring seller contract in his own name. He bring seller
& buyer together to bargain. He gets & buyer together to bargain. He gets
commission ( brokerage ).commission ( brokerage ).

11. 4. 4. Commission AgentCommission Agent – is a mercantile agent who – is a mercantile agent who
is employed to buy & sell goods for his principal is employed to buy & sell goods for his principal
on best possible terms. He transact in his own on best possible terms. He transact in his own
name. He is entitled to commission. He may or name. He is entitled to commission. He may or
may not have possession.may not have possession.
5. 5. Del credere AgentDel credere Agent – is one who guarantees to – is one who guarantees to
his principal, the performance of the financial his principal, the performance of the financial
obligation by party with whom he enters into a obligation by party with whom he enters into a
contract on principal behalf, in consideration of contract on principal behalf, in consideration of
an extra commission. He becomes surety & an extra commission. He becomes surety &
become liable on the default of third party. become liable on the default of third party.
6. 6. BankerBanker – act as a mercantile agent on behalf of – act as a mercantile agent on behalf of
his customer when he collects cheques, drafts, his customer when he collects cheques, drafts,
bills & pay insurance premium & buy or sell bills & pay insurance premium & buy or sell
securities.securities.

12. Creation of Agency Creation of Agency
By express agreementBy express agreement – authority is given – authority is given
to agent in written or by words of mouth. to agent in written or by words of mouth.
He can bind the principal to the third He can bind the principal to the third
parties by his acts parties by his acts to the extent he is to the extent he is
delegated with the authoritydelegated with the authority. .
By implied agreementBy implied agreement
1. 1. Agency by EstoppelAgency by Estoppel – Where a person – Where a person
permit another to act on his behalf. permit another to act on his behalf.
Principal is estopped from denying his Principal is estopped from denying his
agent’s authority. agent’s authority.

13. E.g. A tell B in the presence of P that A is E.g. A tell B in the presence of P that A is
the agent of P. P does not contradict the the agent of P. P does not contradict the
statement. B enter into the contract with P statement. B enter into the contract with P
on the belief that A is P’s agent. In such on the belief that A is P’s agent. In such
case P would be bound by the contract.case P would be bound by the contract.
He is not the agentHe is not the agent
He ceases to be an agentHe ceases to be an agent
2. 2. Agency by holding outAgency by holding out – Some positive – Some positive
conduct of the principal indicates that a conduct of the principal indicates that a
particular person is his agent. particular person is his agent.
P sends A to buy goods on credit from C.P sends A to buy goods on credit from C.
A buys goods on credit for himself & refuses A buys goods on credit for himself & refuses
to pay. C sue P. P cannot plead that A had to pay. C sue P. P cannot plead that A had
no authority. no authority.

14. 3. 3. Agency by necessityAgency by necessity – When an agency is – When an agency is
created by the circumstances. The created by the circumstances. The
impossibility of getting the instructions impossibility of getting the instructions
from the principal is the basis of creation from the principal is the basis of creation
of agency by necessity. of agency by necessity.
E.G. X sent some horses to Y through a E.G. X sent some horses to Y through a
railway company. But Y did not take the railway company. But Y did not take the
delivery of the horses at the destination delivery of the horses at the destination
with the result the railway company had to with the result the railway company had to
feed the horses. Held, the railway co. was feed the horses. Held, the railway co. was
an agent of necessity & could recover the an agent of necessity & could recover the
amount spent on feeding the horses.amount spent on feeding the horses.

15. 4. 4. Agency by ratificationAgency by ratification – Ratification – Ratification
means subsequent adoption or means subsequent adoption or
acceptanceacceptance by a person of an by a person of an
unauthorized act done by another on his unauthorized act done by another on his
behalf without any authority. behalf without any authority.
X buys 5 bags of wheat on behalf of Y X buys 5 bags of wheat on behalf of Y
without his knowledge or authority. Y without his knowledge or authority. Y
would be bound by the contract, if he would be bound by the contract, if he
ratify or accept the same. ratify or accept the same.
It can be expressed or impliedIt can be expressed or implied

16. Essentials of a valid ratificationEssentials of a valid ratification
1. 1. Act must have been done as agent on behalf of Act must have been done as agent on behalf of
principal identifiable principal identifiable – Only the person on whose – Only the person on whose
behalf the act is done can ratify it. If the agent behalf the act is done can ratify it. If the agent
act in his own name, his act cannot be ratified act in his own name, his act cannot be ratified
by any other person.by any other person.
Case: Keighley maxeted & co. Duarnt – X was Case: Keighley maxeted & co. Duarnt – X was
authorised by Y to buy wheat at certain price. X authorised by Y to buy wheat at certain price. X
exceeded his authority & purchased wheat from exceeded his authority & purchased wheat from
Z at a higher price in his own name. He did not Z at a higher price in his own name. He did not
profess to buy wheat on behalf of Y. profess to buy wheat on behalf of Y.
Subsequently Y ratified the act of X but later Subsequently Y ratified the act of X but later
refused to take delivery of the wheat. Z sue Y. refused to take delivery of the wheat. Z sue Y.
Held, the contract could not be ratified because Held, the contract could not be ratified because
X did not purport to act as an agent of Y. X did not purport to act as an agent of Y.

17. 2. The principal must be in existence. Eg 2. The principal must be in existence. Eg
company and promoterscompany and promoters
3. The principal must be competent to ratify 3. The principal must be competent to ratify
the act – must have contractual capacity. the act – must have contractual capacity.
A minor cannot ratify the contract a A minor cannot ratify the contract a
contract on attaining the age of majority. contract on attaining the age of majority.
4. The principal must have the full 4. The principal must have the full
knowledge of all the material facts – X knowledge of all the material facts – X
bought certain goods for Y at the price bought certain goods for Y at the price
greater than the market value in the name greater than the market value in the name
of Y. Y ratified the transaction without of Y. Y ratified the transaction without
knowing the same ( high price ) . The knowing the same ( high price ) . The
ratification is invalid. ratification is invalid.

18. 5. The principal must ratify the whole 5. The principal must ratify the whole
transaction.transaction.
6. Ratification must be made within 6. Ratification must be made within
reasonable time.reasonable time.
7. Act to be ratified must not be void or 7. Act to be ratified must not be void or
illegal.illegal.
8. Ratification must be communicated.8. Ratification must be communicated.

19. Duties of an agentDuties of an agent
To follow principal’s directions – An agent must To follow principal’s directions – An agent must
act within the scope of the authority conferred act within the scope of the authority conferred
on him. An agent was instructed to insure on him. An agent was instructed to insure
goods. He failed to do so. The goods were goods. He failed to do so. The goods were
destroyed. He was held liable to the extent of destroyed. He was held liable to the extent of
loss. loss.
To follow the customs in the absence of To follow the customs in the absence of
instructions – B, a broker, in whose business, it instructions – B, a broker, in whose business, it
is is not the custom to sell on creditnot the custom to sell on credit, sell goods of , sell goods of
A on credit to C, whose credit at the time was A on credit to C, whose credit at the time was
very high. C, before payment, becomes very high. C, before payment, becomes
insolvent. B must make good the loss to A.insolvent. B must make good the loss to A.

20. To conduct business To conduct business with reasonable care with reasonable care
skill & diligenceskill & diligence – A, an agent for the sale – A, an agent for the sale
of goods, having authority to sell on of goods, having authority to sell on
credit, sells to B on credit, credit, sells to B on credit, without making without making
the proper & usual enquires as to the the proper & usual enquires as to the
solvencysolvency of B. B at the time of such sale, of B. B at the time of such sale,
is insolvent. A must make compensation of is insolvent. A must make compensation of
his principal in respect of any loss thereby his principal in respect of any loss thereby
sustained. sustained.
To keep & render accounts to principal To keep & render accounts to principal
when demanded.when demanded.

21. To communicate with principal.To communicate with principal.
Not to deal on his own account – If an Not to deal on his own account – If an
agent wants to deal on his own account, agent wants to deal on his own account,
he must seek the consent of the principal he must seek the consent of the principal
first & must acquaint him with all the first & must acquaint him with all the
material facts. ( Purchase )material facts. ( Purchase )
Not to make secret profits ( Bribe )– Not to make secret profits ( Bribe )–
Agency is a fudiciary relation.Agency is a fudiciary relation.
To pay sum received – he can deduct his To pay sum received – he can deduct his
remuneration & all expenses incurred in remuneration & all expenses incurred in
conducting business.conducting business.

22. Rights of an agent Rights of an agent
Right of retainer – The agent has a right Right of retainer – The agent has a right
to retain, out of any sums received to retain, out of any sums received all all
money due to himmoney due to him in respect of in respect of
remuneration, advance made, expenses remuneration, advance made, expenses
incurred in conducting business.incurred in conducting business.
Right to receive remuneration if he has Right to receive remuneration if he has
completed his task. He is not entitled to completed his task. He is not entitled to
any remuneration for part transaction.any remuneration for part transaction.

23. Right of lien – he has right to exercise Right of lien – he has right to exercise
particular lien over the goods, paper, particular lien over the goods, paper,
property until the amount due to him for property until the amount due to him for
commission, expenses has been paid. commission, expenses has been paid.

24. Duties & Rights of the PrincipalDuties & Rights of the Principal
To pay remuneration to agentTo pay remuneration to agent
To recover compensation for breach of To recover compensation for breach of
duty by the agentduty by the agent
To forfeit agent’s remuneration where he To forfeit agent’s remuneration where he
is guilty of misconduct is guilty of misconduct
To receive any extra profit made by agent.To receive any extra profit made by agent.
To enforce the various duties of the agent.To enforce the various duties of the agent.
To receive all sums.To receive all sums.

25. Termination of Agency Termination of Agency
By act of parties:By act of parties:
2.2.By agreement – mutual consentBy agreement – mutual consent
3.3.By revocation of authority by the By revocation of authority by the
principal – The principal can revoke the principal – The principal can revoke the
authority of an agent at any time before authority of an agent at any time before
the authority has been exercised as to the authority has been exercised as to
bind the principal.bind the principal.
4.4.By renunciation by the agent – by giving By renunciation by the agent – by giving
reasonable notice.reasonable notice.

26. Termination by operation of law:Termination by operation of law:
2.2.By performance of contract of agency. By performance of contract of agency.
3.3.By death of principal or agent.By death of principal or agent.
4.4.By expiry of time – where agency is for By expiry of time – where agency is for
fixed time period.fixed time period.
5.5.By insolvency of the principal.By insolvency of the principal.
6.6.By destruction of subject matter – By destruction of subject matter –
agency was created to sell a house & agency was created to sell a house &
house destroys.house destroys.
7.7.By becoming alien enemy – where By becoming alien enemy – where
principal & agent are from different principal & agent are from different
countries.countries.

27. Irrevocable AgencyIrrevocable Agency
The agency which a principal cannot The agency which a principal cannot
revoke is known as irrevocable agency.revoke is known as irrevocable agency.
Where the agency is coupled with Where the agency is coupled with
interestinterest – A gives authority to B to sell – A gives authority to B to sell
A’s land & to pay himself out of the A’s land & to pay himself out of the
proceeds, the proceeds, the debt due to him from debt due to him from A. A A. A
cannot revoke this authority.cannot revoke this authority.
Where the agent has incurred personal Where the agent has incurred personal
liability liability – Where the agent has bought – Where the agent has bought
goods in his own name principal cannot goods in his own name principal cannot
refuse to pay.refuse to pay.

28. 3. 3. Where the authority has been exercised Where the authority has been exercised
partyparty – X authorizes Y to buy 10 bags of – X authorizes Y to buy 10 bags of
wheat on his account. Y buys 10 bags of wheat on his account. Y buys 10 bags of
wheat in the name of X. X cannot revoke wheat in the name of X. X cannot revoke
the authority.the authority.

29. THANK YOUTHANK YOU